##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-Q/A (Amendment No. 2)
 (Mark One)  þ
    Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934For the quarterly period ended March 31, 2005   o
    Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934For the transition period from ________________________ to _______________________ Commission File Number:  0-20100 BELDEN & BLAKE CORPORATION 
  Ohio
    
    34-1686642(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 5200 Stoneham Road
North Canton, Ohio
    
    44720(Address of principal executive offices)
    
    (Zip Code)
 (330) 499-1660 
     Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. þ Yes o No Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of
accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act. (Check one): o o þ
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). o Yes
þ No As of April 30, 2005, Belden & Blake Corporation had outstanding 1,500 shares of common stock,
without par value, which is its only class of stock.




---



##### 



BELDEN & BLAKE CORPORATION INDEX   PageAmendment No. 2 Overview
    
    
    1PART I Financial InformationItem 1. Financial StatementsConsolidated Balance Sheets as of March 31, 2005 and December 31, 2004
    
    
    2Consolidated Statements of Operations:Three months ended March 31, 2005 (Successor Company)Three months ended March 31, 2004 (Predecessor Company)
    
    
    3Consolidated Statements of Shareholders Equity (Deficit):Three months ended March 31, 2005 (Successor Company)178 day period from July 7, 2004 to December 31, 2004 (Successor Company)188 day
period From January 1, 2004 to July 6, 2004 (Predecessor Company)and the year ended December 31, 2003 (Predecessor Company)
    
    
    4Consolidated Statements of Cash Flows:Three months ended March 31, 2005 (Successor Company)Three months ended March 31, 2004 (Predecessor Company)
    
    
    5Notes to Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    10Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    17Item 4. Controls and Procedures
    
    
    19PART II Other InformationItem 1. Legal Proceedings
    
    
    19Item 4. Submission of Matters to a Vote of Security Holders
    
    
    19Item 6. Exhibits
    
    
    20Exhibit 31.1 CertificationExhibit 31.2 Certification of CFOExhibit 32.1 Certification of CEO Section 906Exhibit 32.2 Certification of CFO Section 906




---



##### Table of Contents



Table of Contents Amendment
No. 2 Overview We have filed amendments to our Annual Report on Form 10-K/A for the year ended December 31, 2004 and to our Quarterly Report on Form 10-Q/A for the quarter ended March 31, 2005 to amend and restate the financial statements and other financial information contained in these reports with respect to the accounting and disclosures for (1) the recognition of additional expense for the ineffective component of non-zero
 value derivatives designated as cash flow hedges, (2) the recognition of a derivative liability for certain derivative contracts that had settled but had not yet been paid, (3) the correction of an error in the recording of Accumulated Other Comprehensive Income related to settled cash flow hedges and (4) the adjustment to income taxes for the effect of the previously discussed corrections. The information contained in
this amendment, including the financial statements and the notes
thereto, reflect only the adjustments described above and do not
reflect events occurring after May 10, 2005, the date of the original
filing of this Form 10-Q.  In addition, currentlydated certifications from our Chief Executive Officer and
our Chief Financial Officer have been included as exhibits to this Amendment. As discussed in Part I Item 4, management identified a control deficiency that constitutes as a material weakness.  In addition, currently-dated certifications from our Chief Executive Officer and our Chief Financial Officer have been included as exhibits to this Amendment. 1




---



##### Table of Contents



PART I. FINANCIAL INFORMATION 
 Item 1. Financial Statements BELDEN & BLAKE CORPORATION 
 CONSOLIDATED BALANCE SHEETS
 (in thousands, except share data)
 March 31,
    
    
    December 31,2005
    
    
    2004(Restated)
    
    
    (Restated)(unaudited)ASSETSCurrent assetsCash and cash equivalents
    
    $
    15,388
    
    
    $
    18,407Accounts receivable, net
    
    
    15,710
    
    
    
    18,667Inventories
    
    
    550
    
    
    
    518Deferred income taxes
    
    
    18,729
    
    
    
    11,169Other current assets
    
    
    1,271
    
    
    
    1,101Total current assets
    
    
    51,648
    
    
    
    49,862Property and equipment, at costOil and gas properties (successful efforts method)
    
    
    520,792
    
    
    
    514,242Gas gathering systems
    
    
    5,106
    
    
    
    4,485Land, buildings, machinery and equipment
    
    
    7,796
    
    
    
    7,720533,694
    
    
    
    526,447Less accumulated depreciation, depletion and amortization
    
    
    24,861
    
    
    
    16,917Property and equipment, net
    
    
    508,833
    
    
    
    509,530Other assets
    
    
    11,076
    
    
    
    11,461$
    571,557
    
    
    $
    570,853LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    $
    5,141
    
    
    $
    3,796Accrued expenses
    
    
    16,413
    
    
    
    23,445Current portion of long-term liabilities
    
    
    1,965
    
    
    
    1,964Fair value of derivatives
    
    
    45,046
    
    
    
    24,902Total current liabilities
    
    
    68,565
    
    
    
    54,107Long-term liabilitiesBank and other long-term debt
    
    
    88,340
    
    
    
    88,592Senior secured notes
    
    
    192,500
    
    
    
    192,500Asset retirement obligations and other long-term liabilities
    
    
    14,704
    
    
    
    14,390295,544
    
    
    
    295,482Fair value of derivatives
    
    
    123,074
    
    
    
    55,182Deferred income taxes
    
    
    83,148
    
    
    
    108,994Shareholders equityCommon stock: without par value; 1,500 shares authorized and
issued
    
    
    
    
    
    
    Paid in capital
    
    
    77,500
    
    
    
    77,500Retained earnings
    
    
    6,627
    
    
    
    7,263Accumulated other comprehensive loss
    
    
    (82,901
    )
    
    
    (27,675
    )Total shareholders equity
    
    
    1,226
    
    
    
    57,088$
    571,557
    
    
    $

570,853
 See accompanying notes. 2




---



##### Table of Contents



BELDEN & BLAKE CORPORATION 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (unaudited, in thousands)
 Successor
    
    
    
    
    
    
    
    
    
    
    
    PredecessorCompany
    
    
    
    
    
    
    
    
    
    
    
    CompanyThree months
    
    
    
    
    
    
    
    
    
    
    
    Three monthsended March 31,
    
    
    
    
    
    
    
    
    
    
    
    ended March 31,2005
    
    
    
    
    
    
    
    
    
    
    
    2004(Restated)RevenuesOil and gas sales
    
    $
    27,921
    
    
    
    
    
    
    
    
    
    
    
    $
    22,362Gas gathering and marketing
    
    
    2,443
    
    
    
    
    
    
    
    
    
    
    
    
    2,583Other
    
    
    107
    
    
    
    
    
    
    
    
    
    
    
    
    12930,471
    
    
    
    
    
    
    
    
    
    
    
    
    25,074ExpensesProduction expense
    
    
    5,420
    
    
    
    
    
    
    
    
    
    
    
    
    5,406Production taxes
    
    
    734
    
    
    
    
    
    
    
    
    
    
    
    
    652Gas gathering and marketing
    
    
    2,106
    
    
    
    
    
    
    
    
    
    
    
    
    2,232Exploration expense
    
    
    952
    
    
    
    
    
    
    
    
    
    
    
    
    1,349General and administrative expense
    
    
    1,764
    
    
    
    
    
    
    
    
    
    
    
    
    1,235Franchise, property and other taxes
    
    
    54
    
    
    
    
    
    
    
    
    
    
    
    
    70Depreciation, depletion and amortization
    
    
    8,305
    
    
    
    
    
    
    
    
    
    
    
    
    4,554Accretion expense
    
    
    255
    
    
    
    
    
    
    
    
    
    
    
    
    95Derivative fair value (gain) loss
    
    
    6,217
    
    
    
    
    
    
    
    
    
    
    
    
    (332
    )25,807
    
    
    
    
    
    
    
    
    
    
    
    
    15,261Operating income
    
    
    4,664
    
    
    
    
    
    
    
    
    
    
    
    
    9,813Other expenseInterest expense
    
    
    5,830
    
    
    
    
    
    
    
    
    
    
    
    
    6,072(Loss) income from continuing operations before income taxes
    
    
    (1,166
    )
    
    
    
    
    
    
    
    
    
    
    
    3,741(Benefit) provision for income taxes
    
    
    (530
    )
    
    
    
    
    
    
    
    
    
    
    
    1,375(Loss) income from continuing operations
    
    
    (636
    )
    
    
    
    
    
    
    
    
    
    
    
    2,366Loss from discontinued operations, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (314
    )Net (loss) income
    
    $
    (636
    )
    
    
    
    
    
    
    
    
    
    
    $
    2,052
 See accompanying notes. 3




---



##### Table of Contents



BELDEN & BLAKE CORPORATION 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY (DEFICIT)
 (in thousands)
 AccumulatedSuccessor Company
    
    
    Predecessor Company
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    TotalCommon
    
    
    Common
    
    
    Common
    
    
    Common
    
    
    Paid in
    
    
    Equity
    
    
    Comprehensive
    
    
    EquityShares
    
    
    Stock
    
    
    Shares
    
    
    Stock
    
    
    Capital
    
    
    (Deficit)
    
    
    Income
    
    
    (Deficit)(Restated)
    
    
    (Restated)
    
    
    (Restated)Predecessor Company:January 1, 2003
    
    
    
    
    
    
    
    
    
    
    10,296
    
    
    $
    1,030
    
    
    $
    107,118
    
    
    $
    (148,332
    )
    
    $
    (4,854
    )
    
    $
    (45,038
    )Comprehensive (loss) income:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,324
    )
    
    
    
    
    
    
    (2,324
    )Other comprehensive income (loss), net of tax:Change in derivative fair value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (18,124
    )
    
    
    (18,124
    )Reclassification adjustment for derivative (gain) loss
reclassified into oil and gas sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,543
    
    
    
    6,543Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,905
    )Stock options exercised
    
    
    
    
    
    
    
    
    
    
    120
    
    
    
    12
    
    
    
    108
    
    
    
    
    
    
    
    
    
    
    
    120Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    326
    
    
    
    
    
    
    
    
    
    
    
    326Repurchase of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (48
    )
    
    
    
    
    
    
    
    
    
    
    (48
    )Tax benefit of repurchase of stock options
and stock options exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    170
    
    
    
    
    
    
    
    
    
    
    
    170Treasury stock
    
    
    
    
    
    
    
    
    
    
    (20
    )
    
    
    (2
    )
    
    
    (41
    )
    
    
    
    
    
    
    
    
    
    
    (43
    )December 31, 2003
    
    
    
    
    
    
    
    
    
    
    10,396
    
    
    
    1,040
    
    
    
    107,633
    
    
    
    (150,656
    )
    
    
    (16,435
    )
    
    
    (58,418
    )Comprehensive income (loss):Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,999
    
    
    
    
    
    
    
    9,999Other comprehensive income (loss), net of tax:Change in derivative fair value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,174
    )
    
    
    (11,174
    )Reclassification adjustment for derivative (gain) loss
reclassified into oil and gas sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,512
    
    
    
    5,512Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,337Stock options exercised
    
    
    
    
    
    
    
    
    
    
    65
    
    
    
    6
    
    
    
    105
    
    
    
    
    
    
    
    
    
    
    
    111Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,097
    
    
    
    
    
    
    
    
    
    
    
    1,097Repurchase of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (283
    )
    
    
    
    
    
    
    
    
    
    
    (283
    )Tax benefit of repurchase of stock options
and stock options exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    116
    
    
    
    
    
    
    
    
    
    
    
    116Treasury stock
    
    
    
    
    
    
    
    
    
    
    (6
    )
    
    
    (1
    )
    
    
    (28
    )
    
    
    
    
    
    
    
    
    
    
    (29
    )Redemption of common stock
    
    
    
    
    
    
    
    
    
    
    (10,455
    )
    
    
    (1,045
    )
    
    
    (108,640
    )
    
    
    140,657
    
    
    
    22,097
    
    
    
    53,069July 6, 2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Successor Company:Sale of common stock
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    77,500
    
    
    
    
    
    
    
    
    
    
    
    77,500Comprehensive income (loss):Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,263
    
    
    
    
    
    
    
    7,263Other comprehensive income (loss), net of tax:Change in derivative fair value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (35,221
    )
    
    
    (35,221
    )Reclassification adjustment for derivative (gain) loss
reclassified into oil and gas sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,546
    
    
    
    7,546Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20,412
    )December 31, 2004
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    77,500
    
    
    
    7,263
    
    
    
    (27,675
    )
    
    
    57,088Comprehensive income (loss):Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (636
    )
    
    
    
    
    
    
    (636
    )Other comprehensive income (loss), net of tax:Change in derivative fair value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (58,146
    )
    
    
    (58,146
    )Reclassification adjustment for derivative (gain) loss
reclassified into oil and gas sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,920
    
    
    
    2,920Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (55,862
    )March 31, 2005 (unaudited)
    
    
    2
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    $
    77,500
    
    
    $
    6,627
    
    
    $
    (82,901
    )
    
    $
    1,226
 See accompanying notes. 4




---



##### Table of Contents



BELDEN & BLAKE CORPORATION 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (unaudited, in thousands)
 Successor
    
    
    
    
    
    
    
    
    
    
    
    PredecessorCompany
    
    
    
    
    
    
    
    
    
    
    
    CompanyThree months
    
    
    
    
    
    
    
    
    
    
    
    Three monthsended March 31,
    
    
    
    
    
    
    
    
    
    
    
    ended March 31,2005
    
    
    
    
    
    
    
    
    
    
    
    2004(Restated)Cash flows from operating activities:Net (loss) income
    
    $
    (636
    )
    
    
    
    
    
    
    
    
    
    
    $
    2,052Adjustments
to reconcile net (loss) income to net cash provided by operating activities:Depreciation, depletion and amortization
    
    
    8,305
    
    
    
    
    
    
    
    
    
    
    
    
    4,947Accretion expense
    
    
    255
    
    
    
    
    
    
    
    
    
    
    
    
    112Loss on disposal of property and equipment
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    
    325Amortization of derivatives and other noncash hedging activities
    
    
    5,807
    
    
    
    
    
    
    
    
    
    
    
    
    (697
    )Exploration expense
    
    
    952
    
    
    
    
    
    
    
    
    
    
    
    
    2,077Deferred income taxes
    
    
    (530
    )
    
    
    
    
    
    
    
    
    
    
    
    1,206Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19Change in operating assets and liabilities, net of
effects of acquisition and disposition of businesses:Accounts receivable and other operating assets
    
    
    2,787
    
    
    
    
    
    
    
    
    
    
    
    
    (286
    )Inventories
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    
    (108
    )Accounts payable and accrued expenses
    
    
    (5,648
    )
    
    
    
    
    
    
    
    
    
    
    
    2,822Net cash
provided by operating activities
    
    
    11,312
    
    
    
    
    
    
    
    
    
    
    
    
    12,469Cash flows from investing activities:Proceeds from property and equipment disposals
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41Exploration expense
    
    
    (952
    )
    
    
    
    
    
    
    
    
    
    
    
    (2,077
    )Additions to property and equipment
    
    
    (7,214
    )
    
    
    
    
    
    
    
    
    
    
    
    (8,024
    )(Increase) decrease in other assets
    
    
    (14
    )
    
    
    
    
    
    
    
    
    
    
    
    144Net cash used in investing activities
    
    
    (8,180
    )
    
    
    
    
    
    
    
    
    
    
    
    (9,916
    )Cash flows from financing activities:Repayment of senior secured facility  term loan
    
    
    (250
    )
    
    
    
    
    
    
    
    
    
    
    
    Proceeds from revolving line of credit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    42,366Repayment of long-term debt and other obligations
    
    
    (28
    )
    
    
    
    
    
    
    
    
    
    
    
    (44,488
    )Settlement
of derivative liabilities recorded in purchase accounting
    
    
    (5,873
    )
    
    
    
    
    
    
    
    
    
    
    
    Proceeds from stock options exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    110Repurchase of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (283
    )Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (25
    )Net cash used in financing activities
    
    
    (6,151
    )
    
    
    
    
    
    
    
    
    
    
    
    (2,320
    )Net (decrease) increase in cash and cash equivalents
    
    
    (3,019
    )
    
    
    
    
    
    
    
    
    
    
    
    233Cash and cash equivalents at beginning of period
    
    
    18,407
    
    
    
    
    
    
    
    
    
    
    
    
    1,440Cash and cash equivalents at end of period
    
    $
    15,388
    
    
    
    
    
    
    
    
    
    
    
    $
    1,673
 See accompanying notes. 5




---



##### Table of Contents



BELDEN & BLAKE CORPORATION 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Restated) (unaudited)
 March 31, 2005 
 Restatement. As discussed
under the heading Amendment No. 2 Overview on
page 1, we have restated our financial statements and other
financial information contained in our originally filed Annual Report
on Form 10-K for the year ended December 31, 2004 and
Quarterly Report on Form 10-Q for the quarter ended
March 31, 2005. (1) Basis of Presentation Unless the context requires otherwise or unless otherwise noted, when we use the terms Belden
& Blake, we, us, our or the Company, we are referring to Belden & Blake Corporation
(Successor Company) and its predecessor. On July 7, 2004, the Company, Capital C Energy
Operations, LP, a Delaware limited partnership (Capital C), and Capital C Ohio, Inc., an Ohio
corporation and a wholly owned subsidiary of Capital C (Merger Sub), completed a merger pursuant
to which Merger Sub was merged with and into the Company (the Merger), with the Company surviving
the Merger as a wholly owned subsidiary of Capital C. The Merger resulted in a change in control
of the Company. The general partner of Capital C is controlled by Carlyle/Riverstone Global Energy
and Power Fund II, L.P. The
Merger was accounted for as a purchase effective July 7,
2004. The Merger resulted in a new basis of accounting reflecting estimated fair values for assets
and liabilities at that date. Accordingly, the financial statements for the period subsequent to
July 6, 2004 are presented on the Companys new basis of accounting, while the results of
operations for prior periods reflect the historical results of the predecessor company. A vertical
black line is presented to separate the financial statements of the predecessor and successor
companies. In the second quarter of 2004, we sold substantially all of our Trenton Black River (TBR)
assets and our Arrow Oilfield Service Company (Arrow) assets. According to Statement of
Financial Accounting Standards No. (SFAS) 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, the dispositions were classified as discontinued operations. Discontinued
operations relating to the TBR and Arrow asset sales resulted in a loss of $483,000 ($314,000 net
of tax) in the first quarter of 2004. Total revenue of $4.1 million was reclassified to
discontinued operations in the first quarter of 2004. Historical information has been restated to
remove the TBR and Arrow assets from continuing operations. The accompanying unaudited consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial information and with
the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been included. Operating
results for the successor company for the three-month period ended
March 31, 2005, as amended, are not necessarily indicative of the results that may be expected for the year ended December 31, 2005.
For further information, refer to the consolidated financial statements and footnotes included in
our Annual Report on Form 10-K for the year ended December 31,
2004, as amended. Certain reclassifications
have been made to conform to the current presentation. (2) Derivatives and Hedging Our financial results and cash flows can be significantly impacted as commodity prices
fluctuate widely in response to changing market conditions. As a result of the adoption of SFAS
133, we recognize all derivative financial instruments as either assets or liabilities at fair
value. Derivative instruments that are not hedges must be adjusted to fair value through net
income (loss). Under the provisions of SFAS 133, changes in the fair value of derivative
instruments that are fair value hedges are offset against 6




---



##### Table of Contents



changes in the fair value of the hedged
assets, liabilities, or firm commitments, through net income (loss). Changes in the fair value of
derivative instruments that are cash flow hedges are recognized in other comprehensive income
(loss) until such time as the hedged items are recognized in
net income (loss). Ineffective portions of a derivative instruments change in fair value are
immediately recognized in net income (loss). Deferred gains and losses on terminated commodity
hedges will be recognized as increases or decreases to oil and gas revenues during the same periods
in which the underlying forecasted transactions are recognized in net income (loss). If there is a
discontinuance of a cash flow hedge because it is probable that the original forecasted transaction
will not occur, deferred gains or losses are recognized in earnings immediately. The relationship between hedging instruments and the hedged items must be highly effective in achieving the offset of changes in fair values or cash flows attributable to the hedged risk, both at inception of the contract on an ongoing basis.  We assess effectiveness at least quarterly based on the relative changes in fair value between the derivative contract and the hedged item over time.
 We discontinue hedge accounting prospectively if we determine that a derivative is no longer highly effective as a hedge or if we decide to discontinue the hedging relationship. From time to time we may enter into a combination of futures contracts, commodity derivatives
and fixed-price physical contracts to manage our exposure to natural gas or crude oil price
volatility and support our capital expenditure plans. Our derivative financial instruments
primarily take the form of swaps or collars. At March 31, 2005, our derivative contracts were
comprised of natural gas swaps and collars and crude oil swaps, which were placed with a major
financial institution that we believe is a minimal credit risk. Qualifying derivative financial
instruments are designated as cash flow hedges. The changes in fair value of non-qualifying
derivative contracts will be reported in expense in the consolidated statements of
operations as derivative fair value (gain) loss. We
use NYMEX-based commodity derivative contracts to hedge natural gas, because our natural gas production is sold pursuant to NYMEX-based sales contracts.  Beginning July 7, 2004, we have ineffectiveness on the natural gas swaps due to purchase accounting related to the Merger (referred to as non-zero value hedges). We have collar agreements that could not be
redesignated as cash flow hedges because these collars were not
effective due to unrealized losses at the date of the Merger. These collars qualified and were designated as cash flow hedges from their inception through
the predecessor company period ended July 6, 2004. Although these collars are not deemed to be effective hedges in accordance with
the provisions of SFAS 133, we have retained these instruments as protection against changes in commodity prices and we will continue
to record the mark-to-market adjustments on these natural gas collars, through 2005, in our income statement. Our NYMEX crude oil
swaps are highly effective and were designated as cash flow hedges. We have ineffectiveness on the crude oil swaps because the oil
is sold locally at a posted price which is different from the NYMEX price and due to purchase accounting related to the Merger (referred
to as non-zero value hedges). Historically, there has been a high correlation between the posted price and NYMEX. The changes in the
fair values of the natural gas collars and the ineffective portion of the crude oil swaps and natural gas swaps are recorded as Derivative fair value gain or loss. During
the first three months of 2005 and 2004, a net loss of
$4.7 million ($2.9 million after
tax) and a net loss of $3.9 million ($2.5 million after tax), respectively, were reclassified from
accumulated other comprehensive income to earnings. The fair value of
open hedges in accumulated other comprehensive income decreased $92.8
million ($58.1 million after tax) in the first three months of
2005 and decreased $10.3 million
($6.6 million after tax) in the first three months of 2004. At March 31, 2005, the estimated net
loss in accumulated other comprehensive income that is expected to be reclassified into earnings
within the next 12 months is approximately $20.5 million. At March 31, 2005, we have partially
hedged our exposure to the variability in future cash flows through December 2013. 7




---



##### Table of Contents



The following table reflects the natural gas and crude oil volumes and the weighted average
prices under financial hedges (including settled hedges) at March 31, 2005: Natural Gas Swaps
    
    
    Natural Gas Collars
    
    
    Crude Oil SwapsNYMEX
    
    
    
    
    
    
    NYMEX Price perPrice per
    
    
    
    
    
    
    Mmbtu Floor/Cap
    
    
    
    
    
    
    NYMEX PriceBbtu
    
    
    Mmbtu
    
    
    Bbtu
    
    
    (1)
    
    
    Mbbls
    
    
    per BblQuarter EndingJune 30, 2005
    
    
    1,500
    
    
    $
    3.70
    
    
    
    1,500
    
    
    $
    4.00 - 5.32
    
    
    
    68
    
    
    $
    34.18September 30, 2005
    
    
    1,500
    
    
    
    3.70
    
    
    
    1,500
    
    
    
    4.00 - 5.32
    
    
    
    67
    
    
    
    33.72December 31, 2005
    
    
    1,500
    
    
    
    3.70
    
    
    
    1,500
    
    
    
    4.00 - 5.32
    
    
    
    67
    
    
    
    33.314,500
    
    
    $
    3.70
    
    
    
    4,500
    
    
    $
    4.00 - 5.32
    
    
    
    202
    
    
    $
    33.74March 31, 2006
    
    
    2,829
    
    
    $
    6.14
    
    
    
    
    
    
    
    
    
    
    
    63
    
    
    $
    32.71June 30, 2006
    
    
    2,829
    
    
    
    5.24
    
    
    
    
    
    
    
    
    
    
    
    62
    
    
    
    32.35September 30, 2006
    
    
    2,829
    
    
    
    5.22
    
    
    
    
    
    
    
    
    
    
    
    62
    
    
    
    32.02December 31, 2006
    
    
    2,829
    
    
    
    5.39
    
    
    
    
    
    
    
    
    
    
    
    62
    
    
    
    31.7111,316
    
    
    $
    5.50
    
    
    
    
    
    
    
    
    
    
    
    249
    
    
    $
    32.20Year EndingDecember 31, 2007
    
    
    10,745
    
    
    $
    4.97
    
    
    
    
    
    
    
    
    
    
    
    227
    
    
    $
    30.91December 31, 2008
    
    
    10,126
    
    
    
    4.64
    
    
    
    
    
    
    
    
    
    
    
    208
    
    
    
    29.96December 31, 2009
    
    
    9,529
    
    
    
    4.43
    
    
    
    
    
    
    
    
    
    
    
    191
    
    
    
    29.34December 31, 2010
    
    
    8,938
    
    
    
    4.28
    
    
    
    
    
    
    
    
    
    
    
    175
    
    
    
    28.86December 31, 2011
    
    
    8,231
    
    
    
    4.19
    
    
    
    
    
    
    
    
    
    
    
    157
    
    
    
    28.77December 31, 2012
    
    
    7,005
    
    
    
    4.09
    
    
    
    
    
    
    
    
    
    
    
    138
    
    
    
    28.70December 31, 2013
    
    
    6,528
    
    
    
    4.04
    
    
    
    
    
    
    
    
    
    
    
    127
    
    
    
    28.70
 Bbl  Barrel
    
    Mmbtu  Million British thermal unitsMbbls  Thousand barrels
    
    Bbtu  Billion British thermal units
   (1)
The NYMEX price per Mmbtu floor/cap for the natural gas collars in 2005
assume the monthly NYMEX settles at $3.10 per Mmbtu or higher. If the monthly NYMEX settles at
less than $3.10 per Mmbtu then the NYMEX price per Mmbtu will be the
NYMEX settle plus $0.90. (3) Stock-Based Compensation We measure expense associated with stock-based compensation under the provisions of Accounting
Principles Board Opinion No. (APB) 25, Accounting for Stock Issued to Employees and its related
interpretations. Under APB 25, no compensation expense is required to be recognized upon the
issuance of stock options to key employees as the exercise price of the option is equal to the
market price of the underlying common stock at the date of grant. For purposes of the pro forma disclosures required by SFAS 123, Accounting for Stock Based
Compensation, the estimated fair value of the options is amortized to expense over the options
vesting period. The changes in net income or loss as if we had applied the fair value provisions
of SFAS 123 for the predecessor company for the three-month ended March 31, 2004 were not material.
The successor company does not have any stock options. The changes in share value and the vesting of shares are reported as adjustments to
compensation expense. The vesting of shares in the predecessor company quarter ended March 31,
2004, resulted in a non-cash increase in compensation expense of $19,000. The successor company
does not have any stock-based compensation. 8




---



##### Table of Contents



(4) Industry Segment Financial Information We operate in one reportable segment, as an independent energy company engaged in producing
oil and natural gas; exploring for and developing oil and gas reserves; acquiring and enhancing the
economic performance of producing oil and gas properties; and marketing and gathering natural gas
for delivery to intrastate and interstate gas transmission pipelines. Our operations are conducted
entirely in the United States. (5) Supplemental Disclosure of Cash Flow Information Successor
    
    
    
    
    
    
    
    
    
    
    
    PredecessorCompany
    
    
    
    
    
    
    
    
    
    
    
    CompanyThree months
    
    
    
    
    
    
    
    
    
    
    
    Three monthsended March 31,
    
    
    
    
    
    
    
    
    
    
    
    ended March 31,(in thousands)
    
    2005
    
    
    
    
    
    
    
    
    
    
    
    2004Cash paid during the period for:Interest
    
    $
    10,398
    
    
    
    
    
    
    
    
    
    
    
    $
    981Income taxes
    
    
    500
    
    
    
    
    
    
    
    
    
    
    
    
    
 (6) Contingencies In April 2002, we were notified of a claim by an overriding royalty owner in Michigan alleging
the underpayment of royalties resulting from disputes as to the interpretation of the terms of
several farmout agreements. On July 6, 2004, a suit was filed in Otsego County, Michigan by the
successor in interest to these royalty interests, alleging substantially the same underpayments.
In April 2005, we entered into a settlement agreement that provides for a payment to the royalty
owner of an amount approximately equal to the amount accrued at March 31, 2005 and an increase in
the future overriding royalty percentage in several wells. The result will have no material
adverse effect on our financial position, results of operations or cash flows. 9




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations. Forward-Looking Information The information in this document includes forward-looking statements that are made pursuant to
the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. Statements
preceded by, followed by or that otherwise include the statements should, believe, expect,
anticipate, intend, will, continue, estimate, plan, outlook, may, future,
projection, likely, possible, would, could and variations of these statements and similar
expressions are forward-looking statements as are any other statements relating to developments,
events, occurrences, results, efforts or impacts. These forward-looking statements are based on
current expectations and projections about future events. Forward-looking statements and the
business prospects of Belden & Blake are subject to a number of risks and uncertainties which may
cause our actual results in future periods to differ materially from the forward-looking statements
contained herein. These risks and uncertainties include, but are not limited to, our access to
capital, the market demand for and prices of oil and natural gas, our oil and gas production and
costs of operation, results of our future drilling activities, the uncertainties of reserve
estimates, general economic conditions, new legislation or regulatory changes, changes in
accounting principles, policies or guidelines and environmental risks. These and other risks are
described in our Annual Report on Form 10-K for the year ended
December 31, 2004, as amended, under the Heading
Risk Factors and in our other filings with the Securities and Exchange Commission (SEC). We
undertake no obligation to publicly update or revise any forward-looking statement, whether as a
result of new information, future events, changes in assumptions, or otherwise. CRITICAL ACCOUNTING POLICIES We prepare our consolidated financial statements in accordance with accounting principles
generally accepted in the United States (GAAP) and SEC guidance. See the Notes to Consolidated
Financial Statements included in Item 8. Financial Statements and Supplementary Data in our
Annual Report on Form 10-K for the year ended December 31, 2004,
as amended, filed with the SEC for a more
comprehensive discussion of our significant accounting policies. GAAP requires information in
financial statements about the accounting principles and methods used and the risks and
uncertainties inherent in significant estimates including choices between acceptable methods.
Following is a discussion of our most critical accounting policies. Successful Efforts Method of Accounting The accounting for and disclosure of oil and gas producing activities requires our management
to choose between GAAP alternatives and to make judgments about estimates of future uncertainties. We use the successful efforts method of accounting for oil and gas producing activities as
opposed to the alternate acceptable full cost method. Under the successful efforts method,
property acquisition and development costs and certain productive exploration costs are capitalized
while non-productive exploration costs, which include certain geological and geophysical costs,
exploratory dry hole costs and costs of carrying and retaining undeveloped properties, are expensed
as incurred. The geological and geophysical costs include costs for salaries and benefits of our
personnel in those areas and other third party costs. The costs of carrying and retaining
undeveloped properties include salaries and benefits of our land department personnel, delay rental
payments made on new and existing leases, ad valorem taxes on existing leases and the cost of
previously capitalized leases that are written off because the leases were dropped or expired.
Exploratory dry hole costs include the costs associated with drilling an exploratory well that has
been determined to be a dry hole. 10




---



##### Table of Contents



The major difference between the successful efforts method of accounting and the full cost
method is under the full cost method of accounting, such exploration costs and expenses are
capitalized as assets, pooled with the costs of successful wells and charged against the net income
(loss) of future periods as a component of depletion expense. Oil and Gas Reserves Our estimated proved developed and estimated proved undeveloped reserves are all located
within the Appalachian and Michigan Basins in the United States. There are many uncertainties
inherent in estimating proved reserve quantities and in projecting future production rates and the
timing of development expenditures. In addition, estimates of new discoveries are more imprecise
than those of properties with a production history. Accordingly, these estimates are expected to
change as future information becomes available. Material revisions of reserve estimates may occur
in the future, development and production of the oil and gas reserves may not occur in the periods
assumed and actual prices realized and actual costs incurred may vary significantly from
assumptions used. Estimated proved reserves represent estimated quantities of natural gas and oil
that geological and engineering data demonstrate, with reasonable certainty, to be recoverable in
future years from known reservoirs under economic and operating conditions existing at the time the
estimates were made. Estimated proved developed reserves are estimated proved reserves expected to
be recovered through wells and equipment in place and under operating methods being used at the
time the estimates were made. The accuracy of a reserve estimate is a function of:  
    the quality and quantity of available data;
    the interpretation of that data;
    the accuracy of various mandated economic assumptions; and
    the judgment of the persons preparing the estimate. Capitalization, Depreciation, Depletion and Impairment of Long-Lived Assets See the Successful Efforts Method of Accounting discussion above. Capitalized costs related
to estimated proved properties are depleted using the unit-of-production method. Depreciation,
depletion and amortization of proved oil and gas properties are calculated on the basis of
estimated recoverable reserve quantities. These estimates can change based on economic or other
factors. No gains or losses are recognized upon the disposition of oil and gas properties except
in extraordinary transactions. Sales proceeds are credited to the carrying value of the
properties. Maintenance and repairs are expensed, and expenditures which enhance the value of
properties are capitalized. Unproved oil and gas properties are stated at cost and consist of undeveloped leases. These
costs are assessed periodically to determine whether their value has been impaired, and if
impairment is indicated, the costs are charged to expense. Gas gathering systems are stated at cost. Depreciation expense is computed using the
straight-line method over 15 years. Property and equipment are stated at cost. Depreciation of non-oil and gas properties is
computed using the straight-line method over the useful lives of the assets ranging from 3 to 15
years for machinery and equipment and 30 to 40 years for buildings. When assets other than oil and
gas properties are retired or otherwise disposed of, the cost and related accumulated depreciation
are removed from the accounts, and any resulting gain or loss is reflected in income for the
period. The cost of maintenance and repairs is expensed as incurred, and significant renewals and
betterments are capitalized. 11




---



##### Table of Contents



Long-lived assets are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. If the sum of the expected future
undiscounted cash flows is less than the carrying amount of the asset, a loss is recognized for the
difference between the fair value and the carrying amount of the asset. Fair value is determined
based on managements outlook of future oil and natural gas prices and estimated future cash flows
to be generated by the assets, discounted at a market rate of interest. Impairment of unproved
properties is based on the estimated fair value of the property. Derivatives and Hedging Our financial results and cash flows can be significantly impacted as commodity prices
fluctuate widely in response to changing market conditions. Under the provisions of SFAS 133,
Accounting for Derivative Instruments and Hedging Activities, as amended, we recognize all
derivative financial instruments as either assets or liabilities at fair value. The changes in
fair value of derivative instruments not qualifying for designation as cash flow hedges are reported in expense in the consolidated statements of operations as
derivative fair value (gain) loss. Changes in the fair value of derivative instruments that are fair value hedges are offset
against changes in the fair value of the hedged assets, liabilities, or firm commitments, through
net income (loss). Changes in the fair value of derivative instruments that are cash flow hedges
are recognized in other comprehensive income (loss) until such time as the hedged items are
recognized in net income (loss). The relationship between hedging instruments and the hedged items must be highly effective in achieving the offset of changes in fair values or cash flows attributable to the hedged risk, both at inception of the contract on an ongoing basis.  We assess effectiveness at least quarterly based on the relative changes in fair value between the derivative contract and the hedged item over time.
 We discontinue hedge accounting prospectively if we determine that a derivative is no longer highly effective as a hedge or if we decide to discontinue the hedging relationship. From time to time we may enter into a combination of futures contracts, commodity
derivatives and fixed-price physical contracts to manage our exposure to natural gas or oil price
volatility and support our capital expenditure plans. Our derivative financial instruments
primarily take the form of swaps or collars. At March 31, 2005, our derivative contracts were
comprised of natural gas swaps and collars and crude oil swaps, which were placed with a major
financial institution that we believe is a minimal credit risk. Qualifying derivative
financial instruments are designated as cash flow hedges. We
use NYMEX-based commodity derivative contracts to hedge natural gas,
because our natural gas production is sold pursuant to NYMEXbased
sales contracts. Beginning July 7, 2004, we have ineffectiveness on
the natural gas swaps due to purchase accounting related to the
Merger (referred to as nonzero value hedges). We have collar agreements that could not be redesignated as
 cash flow hedges because these collars were not effective due to unrealized losses at the
 date of the Merger. These collars qualified and were designated as
cash flow hedges from their inception through the predecessor company
period ended July 6, 2004. Although these collars are not deemed to
be effective hedges in accordance with the provisions of SFAS 133, we
have retained these instruments as protection against changes in
commodity prices and we will continue to record the marktomarket adjustments on these natural gas collars, through 2005, in our income statement.
 Our NYMEX crude oil swaps are highly effective and were designated as cash flow hedges.
 We have ineffectiveness on the crude oil swaps because the oil is sold locally at a posted
 price which is different from the NYMEX price and due to purchase
accounting related to the Merger (referred to as non-zero value
hedges). Historically, there has been a high correlation between the
posted price and NYMEX. The changes in the fair values of the
natural gas collars and the ineffective portion of the crude oil
swaps and natural gas swaps are recorded as Derivative fair
value gain or loss. 12




---



##### Table of Contents



Revenue Recognition Oil and gas production revenue is recognized as production and delivery take place. Oil and
gas marketing revenues are recognized when title passes. Asset Retirement Obligations Under the provisions of SFAS 143, Accounting for Asset Retirement Obligations, we recognize
a liability for the fair value of our asset retirement obligations associated with our tangible,
long-lived assets. The majority of our asset retirement obligations recorded relate to the
plugging and abandonment (excluding salvage value) of our oil and gas properties. Subsequent to
the adoption of SFAS 143, there has been no significant current period activity with respect to
additional retirement obligations, settled obligations, accretion expense and revisions of
estimated cash flows. The asset retirement obligations increased as a result of purchase accounting
for the Merger, primarily due to a lower discount rate and revised estimates of asset lives on
certain oil and gas wells. Results of Operations The Merger was completed on July 7, 2004 and was accounted
for as a purchase effective July 7, 2004. The Merger resulted in a new basis of accounting
reflecting estimated fair values for assets and liabilities at that date. Accordingly, the
financial statements for the period subsequent to July 6, 2004 are presented on the Companys new
basis of accounting, while the results of operations for prior periods reflect the historical
results of the predecessor company. A vertical black line is presented to separate the financial
statements of the predecessor and successor companies. The allocation of the purchase price at fair value resulted in a significant increase in the
book value of our assets. The increase in the book value of assets resulted in materially higher
charges for depreciation, depletion and amortization in the successor company period ended March
31, 2005. These higher charges are expected to continue in subsequent accounting periods. 13




---



##### Table of Contents



The following Managements Discussion and Analysis is based on the results of operations from
continuing operations, unless otherwise noted. Accordingly, discontinued operations have been
excluded. The following table sets forth certain information regarding our net oil and natural gas
production, revenues and expenses for the periods indicated: Three months ended March 31,2005
    
    
    2004(Restated)ProductionGas (Mmcf)
    
    
    3,563
    
    
    
    3,879Oil (Mbbls)
    
    
    83
    
    
    
    97Total production (Mmcfe)
    
    
    4,059
    
    
    
    4,458Average priceGas (per Mcf)
    
    $
    7.00
    
    
    $
    4.97Oil (per Bbl)
    
    
    36.12
    
    
    
    32.05Mcfe
    
    
    6.88
    
    
    
    5.02Average costs (per Mcfe)Production expense
    
    
    1.34
    
    
    
    1.21Production taxes
    
    
    0.18
    
    
    
    0.15Depletion
    
    
    1.89
    
    
    
    0.83Operating margin (per Mcfe)
    
    
    5.36
    
    
    
    3.66
 Mmcf  Million cubic feet
    
    Mbbls  Thousand barrels
    
    Mmcfe  Million cubic feet of natural gas equivalentMcf  Thousand cubic feet
    
    Bbl  Barrel
    
    Mcfe  Thousand cubic feet of natural gas equivalentOperating margin (per Mcfe)  average price less production expense and production taxes
 First Quarters of 2005 and 2004 Compared Revenues Net
operating revenues increased from $24.9 million in the first
quarter of 2004 to $30.4
million in the first quarter of 2005. The increase was due to higher oil and gas sales revenues of
$5.6 million partially offset by lower gas gathering and marketing revenues of $140,000. Gas volumes sold were 3.6 Bcf (billion cubic feet) in the first quarter of 2005, which was a
decrease of 316 Mmcf (8%) compared to the first quarter of 2004. This decrease in gas volumes sold
resulted in a decrease in gas sales revenues of approximately $1.6 million. Oil volumes sold
decreased approximately 14,000 Bbls (14%) from 97,000 Bbls in the first quarter of 2004 to 83,000
Bbls in the first quarter of 2005 resulting in a decrease in oil sales revenues of approximately
$440,000. The lower oil and gas sales volumes are primarily due to normal production declines partially offset by production from new wells drilled during 2004 and 2005. The
average price realized for our natural gas increased $2.03 per Mcf from $4.97 in the
first quarter of 2004 to $7.00 per Mcf in the first quarter of 2005, which increased gas sales
revenues by approximately $7.2 million. As a result of our hedging activities, gas sales revenues
were increased by $1.0 million ($0.28 per Mcf) in the first quarter of 2005 and decreased by $3.5
million ($0.91 per Mcf) in the first quarter of 2004. The average price realized for our oil
increased from $32.05 per Bbl in the first quarter of 2004 to $36.12 per Bbl in the first quarter
of 2005, which increased oil sales revenues by approximately $340,000. As a result of our hedging
activities, oil sales revenues were decreased by approximately
$850,000 ($10.31 per Bbl) in the
first quarter of 2005. The operating margin from oil and gas sales (oil and gas sales revenues less production
expense
and production taxes) on a per unit basis increased from $3.66 per Mcfe in the first quarter of
2004 to 14




---



##### Table of Contents



$5.36 per Mcfe in the first
quarter of 2005. The average price increased $1.86 per Mcfe
which was partially offset by an increase in production expense of $0.13 per Mcfe and an increase
in production taxes of $0.03 per Mcfe in the first quarter of 2005 compared to the first quarter of
2004. The decrease in gas gathering and marketing revenues was due to a $128,000 decrease in gas
marketing revenues and a $12,000 decrease in gas gathering revenues. The lower gas gathering and
marketing revenues resulted primarily from the lower gas volumes discussed above. Costs and Expenses Production expense was $5.4 million in the first quarter of 2004 and the first quarter of
2005. The average production cost increased from $1.21 per Mcfe in the first quarter of 2004 to
$1.34 per Mcfe in the first quarter of 2005. The per unit increase was due to the lower volumes
discussed above. Production taxes increased $82,000 from $652,000 in the first quarter of 2004 to $734,000 in
the first quarter of 2005. Average per unit production taxes increased from $0.15 per Mcfe in the
first quarter of 2004 to $0.18 per Mcfe in the first quarter of 2005. The increased production
taxes are primarily due to higher oil and gas prices in Michigan, where production taxes are based
on a percentage of revenues, excluding the effects of hedging. Exploration expense decreased $397,000 (29%) from $1.3 million in the first quarter of 2004 to
$1.0 million in the first quarter of 2005. This decrease is primarily due to lower expired lease
expense and decreases in employment and compensation related expense. General and administrative expense increased $529,000 (43%) from $1.2 million in the first
quarter of 2004 to $1.8 million in the first quarter of 2005 primarily due to $489,000 related to
severance agreements with two former executives in the first quarter of 2005, an increase of
$311,000 in audit and legal services related to our public filings and Sarbanes-Oxley efforts
partially offset by $176,000 for strategic advisory services in the first quarter of 2004 related
to the potential sale of the Company. Depreciation, depletion and amortization increased by $3.7 million from $4.6 million in the
first quarter of 2004 to $8.3 million in the first quarter of 2005. This increase was primarily
due to an increase in depletion expense. Depletion expense increased $4.0 million (108%) from $3.7
million in the first quarter of 2004 to $7.7 million in the first quarter of 2005 primarily due to
a higher depletion rate per Mcfe. Depletion per Mcfe increased from $0.83 per Mcfe in the first
quarter of 2004 to $1.89 per Mcfe in the first quarter of 2005, primarily due to a higher cost
basis resulting from purchase accounting for the Merger. Derivative fair value (gain) loss was a gain of $332,000 in the first quarter of 2004 compared
to a loss of $6.2 million in the first quarter of 2005. The derivative fair value (gain) loss
reflects the changes in fair value of certain derivative instruments that are not designated or do
not qualify as cash flow hedges and $126,000  related to the ineffective portion of crude oil
swaps and natural gas hedges qualifying for hedge accounting which was recorded in the first quarter of 2005. Interest expense decreased $242,000 from $6.1 million in the first quarter of 2004 to $5.8
million in the first quarter of 2005. This decrease was due to lower blended interest rates
partially offset by an increase in average outstanding borrowings. Income
tax expense decreased $1.9 million from $1.4 million in the first quarter of 2004
to a benefit of $530,000  in the first quarter of 2005. The decrease was primarily due to a
decrease in
income from continuing operations before income taxes. 15




---



##### Table of Contents



Discontinued operations relating to the TBR and Arrow asset sales resulted in a loss, net of
tax, of $314,000 in the first quarter of 2004. The TBR and Arrow assets were sold in the second
quarter of 2004. Liquidity and Capital Resources Cash Flows The primary sources of cash in the three-month period ended March 31, 2005 have been funds
generated from operations. Funds used during this period were primarily used for operations,
exploration and development expenditures and interest expense. Our liquidity and capital resources
are closely related to and dependent upon the current prices paid for our oil and natural gas. Our
operating activities provided cash flows of $11.3 million during the first three months of
2005 compared to $12.5 million in the first three months of
2004. The decrease of $1.2 million was primarily due
to changes in working capital items of
$5.3 million, partially offset by higher cash received for oil and gas sales
revenues (net of hedging). Cash
flows used in investing activities were $8.2 million in the
first three months of 2005 compared to $9.9 million in the first
three months of 2004. The decrease was primarily
due to a decrease in exploration expense of $1.1 million and an
$810,000 decrease in capital expenditures in the first three months of 2005. Cash
flows used in financing activities increased in the first three months of 2005 primarily
due to the settlement of derivative liabilities recorded in purchase
accounting due to the Merger and lower debt repayment during the first three months of 2005. Our
current ratio at March 31, 2005 was 0.75 to 1. During the first three months of 2005, the
working capital from continuing operations decreased
$12.7 million from a deficit of $4.2 million
at December 31, 2004 to a deficit of $16.9 million at March 31, 2005. The decrease was primarily
due to a $20.1 million increase in the current liability for the fair value of derivatives, a $3.0
million decrease in cash and cash equivalents and a $3.0 million decrease in accounts receivable
partially offset by a $7.0 million decrease in accrued expenses
and a $7.6 million increase in the
deferred income taxes asset. The decrease in accrued expenses was primarily due to a $4.6 million
decrease in accrued interest expense. Capital Expenditures During the first three months of 2005, we spent approximately $7.3 million, including
exploratory dry hole expense, on our drilling activities and other capital expenditures. In the
first three months of 2005, we drilled 28 gross (27.3 net) development wells, all of which were
successfully completed as producers in the target formation. We currently expect to spend approximately $36 million during 2005 on our drilling
activities, including exploratory dry hole expense, and other capital expenditures. We
intend to finance our planned capital expenditures through our cash on hand, available cash flow,
borrowings under our revolving credit facility and, to a lesser extent, the sale of non-strategic
assets. At March 31, 2005, we had cash of $15.4 million and approximately $13.8 million available
under our revolving facility. The level of our future cash flow will depend on a number of factors
including the demand for and price levels of oil and gas, the scope and success of our drilling
activities and our ability to acquire additional producing properties. There can be no assurance
that the future drilling of our proved undeveloped locations will provide adequate liquidity in the
future. At March 31, 2005, we had a $170 million credit facility comprised of: a seven year $100
million term facility; a six year $30 million revolving facility for working capital requirements
and general
corporate purposes, including the issuance of letters of credit; and a six year $40 million letter
of credit 16




---



##### Table of Contents



facility that may be used only to provide credit support for our obligations under the
hedge agreement and other hedge transactions. At March 31, 2005, the interest rate under our base
rate option was 7.50%. Under our three month LIBOR option the rate was 5.80%. At March 31, 2005,
we had $56.2 million of outstanding letters of credit. At March 31, 2005, there was no outstanding
balance under the revolving credit agreement. Under the term facility the outstanding balance was
$89.25 million. We had $13.8 million of borrowing capacity under our revolving facility available
for general corporate purposes. As of March 31, 2005, we were in compliance with all financial
covenants and requirements under the existing credit facilities. 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk Among other risks, we are exposed to interest rate and commodity price risks. The interest rate risk relates to existing debt under our revolving facility as well as any
new debt financing needed to fund capital requirements. We may manage our interest rate risk
through the use of interest rate swaps to hedge the interest rate exposure associated with the
credit agreement, whereby a portion of our floating rate exposure is exchanged for a fixed interest
rate. A portion of our long-term debt consists of senior secured notes where the interest
component is fixed. We had no derivative financial instruments for managing interest rate risks in
place as of March 31, 2005 or 2004. If market interest rates for short-term borrowings increased
1%, the increase in interest expense in the first quarter would be approximately $223,000. This
sensitivity analysis is based on our financial structure at March 31, 2005. The commodity price risk relates to natural gas and crude oil produced, held in storage and
marketed. Our financial results can be significantly impacted as commodity prices fluctuate widely
in response to changing market forces. From time to time, we may enter into a combination of
futures contracts, commodity derivatives and fixed-price physical contracts to manage our exposure
to commodity price volatility. We employ a policy of partially hedging oil production sold locally
at a posted price and gas production sold under NYMEX-based contracts by selling NYMEX-based
commodity derivative contracts which are placed with major financial institutions that we believe
are minimal credit risks. Historically, there has been a high correlation between the posted price
and NYMEX. The contracts may take the form of futures contracts, swaps or options. If NYMEX gas
prices decreased $0.50 per Mcf, our gas sales revenues for the quarter would decrease by $281,000,
after considering the effects of the hedging contracts in place at March 31, 2005. If the price of
crude oil decreased $3.00 per Bbl, oil sales revenues for the quarter would decrease by $46,000,
after considering the effects of the hedging contracts in place at March 31, 2005. We had net
pre-tax gains on our hedging activities reported in oil and gas sales
revenue of $152,000  in the first three months of 2005
and a net pre-tax loss of $3.5 million in the first three months of 2004. At March 31, 2005, we had hedges on a portion of
our oil and gas production for the remainder of 2005 through 2013. This sensitivity analysis is
based on our 2005 oil and gas sales volumes and assumes the NYMEX gas price would be above the
ceiling in 2005 listed in the table below. 17




---



##### Table of Contents



The following table reflects the natural gas and crude oil volumes and the weighted average
prices under financial hedges (including settled hedges) at April 30, 2005: Natural Gas Swaps
    
    
    Natural Gas Collars
    
    
    Crude Oil SwapsNYMEX
    
    
    
    
    
    
    NYMEX Price perPrice per
    
    
    
    
    
    
    Mmbtu Floor/Cap
    
    
    
    
    
    
    NYMEX PriceBbtu
    
    
    Mmbtu
    
    
    Bbtu
    
    
    (1)
    
    
    Mbbls
    
    
    per BblQuarter EndingJune 30, 2005
    
    
    1,500
    
    
    $
    3.70
    
    
    
    1,500
    
    
    $
    4.00 - 5.32
    
    
    
    68
    
    
    $
    34.18September 30, 2005
    
    
    1,500
    
    
    
    3.70
    
    
    
    1,500
    
    
    
    4.00 - 5.32
    
    
    
    67
    
    
    
    33.72December 31, 2005
    
    
    1,500
    
    
    
    3.70
    
    
    
    1,500
    
    
    
    4.00 - 5.32
    
    
    
    67
    
    
    
    33.314,500
    
    
    $
    3.70
    
    
    
    4,500
    
    
    $
    4.00 - 5.32
    
    
    
    202
    
    
    $
    33.74March 31, 2006
    
    
    2,829
    
    
    $
    6.14
    
    
    
    
    
    
    
    
    
    
    
    63
    
    
    $
    32.71June 30, 2006
    
    
    2,829
    
    
    
    5.24
    
    
    
    
    
    
    
    
    
    
    
    62
    
    
    
    32.35September 30, 2006
    
    
    2,829
    
    
    
    5.22
    
    
    
    
    
    
    
    
    
    
    
    62
    
    
    
    32.02December 31, 2006
    
    
    2,829
    
    
    
    5.39
    
    
    
    
    
    
    
    
    
    
    
    62
    
    
    
    31.7111,316
    
    
    $
    5.50
    
    
    
    
    
    
    
    
    
    
    
    249
    
    
    $
    32.20Year EndingDecember 31, 2007
    
    
    10,745
    
    
    $
    4.97
    
    
    
    
    
    
    
    
    
    
    
    227
    
    
    $
    30.91December 31, 2008
    
    
    10,126
    
    
    
    4.64
    
    
    
    
    
    
    
    
    
    
    
    208
    
    
    
    29.96December 31, 2009
    
    
    9,529
    
    
    
    4.43
    
    
    
    
    
    
    
    
    
    
    
    191
    
    
    
    29.34December 31, 2010
    
    
    8,938
    
    
    
    4.28
    
    
    
    
    
    
    
    
    
    
    
    175
    
    
    
    28.86December 31, 2011
    
    
    8,231
    
    
    
    4.19
    
    
    
    
    
    
    
    
    
    
    
    157
    
    
    
    28.77December 31, 2012
    
    
    7,005
    
    
    
    4.09
    
    
    
    
    
    
    
    
    
    
    
    138
    
    
    
    28.70December 31, 2013
    
    
    6,528
    
    
    
    4.04
    
    
    
    
    
    
    
    
    
    
    
    127
    
    
    
    28.70
 Bbl  Barrel
    
    Mmbtu  Million British thermal unitsMbbls  Thousand barrels
    
    Bbtu  Billion British thermal units
   (1)
    The NYMEX price per Mmbtu floor/cap for the natural gas collars in 2005
assume the monthly NYMEX settles at $3.10 per Mmbtu or higher. If the monthly NYMEX settles at
less than $3.10 per Mmbtu then the NYMEX price per Mmbtu will be the NYMEX settle plus $0.90. The proximity of our properties in the Appalachian and Michigan Basins to large
commercial and industrial natural gas markets has generally resulted in premium wellhead gas prices
compared with the prices of NYMEX futures contracts for gas delivered at the Henry Hub in
Louisiana. Monthly spot natural gas prices in our market areas are typically $0.15 to $0.60 higher
per Mcf than comparable NYMEX prices. Our average price received for crude oil is typically $3.00
to $3.50 per barrel below the NYMEX price per barrel. 18




---



##### Table of Contents



Item 4. Controls and Procedures Evaluation of Disclosure Controls and Procedures Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2005. Based on that evaluation and solely because of the material weakness in internal control over financial reporting discussed below, the Chief Executive Officer and the Chief Financial
Officer concluded that our disclosure controls and procedures were not effective in
providing reasonable assurance that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported as and when required and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, in a manner that allows timely decisions regarding required disclosure.  Notwithstanding the material weakness discussed below,
our management has concluded that the financial statements included in this
 Form 10-Q/A fairly present in all material respects our financial position, results of
operations and cash flows for the periods presented in conformity with generally accepted
accounting principles. Changes in Internal Control over Financial Reporting Except as noted below, there were no changes in the internal control over financial reporting that occurred during the period ended March 31, 2005 that materially affected, or that are reasonably likely to materially affect, internal control over financial reporting. Identification of Material Weakness in Internal Control over Financial Reporting A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.  Management and the Board of Directors have concluded that we did not maintain effective controls to ensure that hedge accounting was correctly applied pursuant to generally accepted accounting principles.
 Specifically, our accounting for certain hedging transactions did not meet the requirements of SFAS 133 and related interpretations in the following areas: (1) the recognition of additional expense for the ineffective component of non-zero value derivatives designated as cash flow hedges, (2) the recognition of a derivative liability for certain derivative contracts that had settled but had not yet been paid, (3) the correction of an error in the recording of Accumulated Other Comprehensive Income related to settled cash flow hedges and (4) the adjustment to income taxes for the effect of the previously discussed corrections. This control deficiency resulted in the restatement of our consolidated financial statements for the years ended December 31, 2004, 2003 and 2002, the periods ended March 31, June 30, September 30 and December 31, 2004 and the period ended March 31, 2005.  Accordingly, management determined that this control deficiency constituted a material weakness in internal control over financial reporting as of March 31, 2005. Plans for Remediation Management intends to remediate the material weakness in internal control over financial reporting and will report on its status when it files its Form 10-K for the year ending December 31, 2005. In particular, management intends to:  
    revise our accounting policies and procedures for derivative accounting to meet the requirements of SFAS 133; and
    strengthen our internal knowledge base regarding hedge accounting with improved training and expertise. By implementing these internal control improvements, management expects to remediate this material weakness in internal control over financial reporting. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. We will continue to improve the design and effectiveness of its
disclosure controls and procedures and internal control over financial reporting to the extent
 necessary in the future to provide senior management with timely access to such material information and to correct any deficiencies that may be discovered in the future. 
 PART II OTHER INFORMATION 
 Item 1. Legal Proceedings. In April 2002, we were notified of a claim by an overriding royalty owner in Michigan alleging
the underpayment of royalties resulting from disputes as to the interpretation of the terms of
several farmout agreements. On July 6, 2004, a suit was filed in Otsego County, Michigan by the
successor in interest to these royalty interests, alleging substantially the same underpayments.
In April 2005, we entered into a settlement agreement that provides for a payment to the royalty
owner of an amount approximately equal to the amount accrued at March 31, 2005 and an increase in
the future overriding royalty percentage in several wells. The result will have no material
adverse effect on our financial position, results of operations or cash flows. 
 Item 4. Submission of Matters to a Vote of Security Holders. On February 14, 2005, Capital C approved by written consent in lieu of a meeting, a resolution
naming Morris B. Sam Smith to our Board of Directors and increasing our Boards membership from
six to seven. The terms of office of our other directors, Gregory A. Beard, Michael Becci, Michael
B. Hoffman, Pierre F. Lapeyre, Jr., David M. Leuschen and James A. Winne III, continued after
February 14, 2005. 19




---



##### Table of Contents



Item 6. Exhibits. (a) Exhibits  31.1*
    Certification of Principal Executive Officer of Belden & Blake Corporation as required by
Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934  31.2*
    Certification of Principal Financial Officer of Belden & Blake Corporation as required by
Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934  32.1*
    Certification of Chief Executive Officer of Belden & Blake Corporation pursuant to 18 U.S.C.
Section 1350.  32.2*
    Certification of Chief Financial Officer of Belden & Blake Corporation pursuant to 18 U.S.C.
Section 1350.   * Filed herewith. 20




---



##### Table of Contents



SIGNATURES 
 Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the
Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized. BELDEN & BLAKE CORPORATIONDate: March 30, 2006
    By:
    /s/ Mark A. HouserMark A. Houser, Chief Executive Officer,Chairman of the Board of Directors and Director Date: March 30, 2006
    By:

/s/ James M.VanderhiderJames M.Vanderhider,
President 
and Chief Financial Officer 21